Author: Milind Bhate
The digital revolution will propel GICs to a pivotal position in the sourcing mix of large outsourcers
With digital forces disrupting established business models, technology has ceased to be a mere enabler of business to a veritable driver. The advent of analytics, mobility and cloud based solutions offers organizations new avenues to enhance customer experience, increase agility and rationalize costs. The business value chain is being digitized with organization functions like marketing, research and development, production and logistics evincing interest in technology as never before.
Technology has become too valuable to be left in the hands of service providers, which explains the rise in insourcing. While Exxon has already announced an investment of USD 500 m to set up a Technology and R&D center in Bangalore, Target is the latest big outsourcer to take IT back in house. Lowe is increasing its India foot print and making investments to create an ecosystem that delivers technology based solutions. Astra Zeneca has already demonstrated the cost viability of insourcing by saving more than their expected costs from the insourcing initiative.
The rise of insourcing and adoption of new technologies will increase the relevance of GICs to the parent organization. To be sure, GICs were always a component of the sourcing mix of large outsourcers. Captives (as GICs were referred to then) were initially set up as an alternative to offshore service providers. In due course they evolved into providing niche skills to the parent organization. In the digital age, GICs will have to ensure their parent organization retains its competitive edge in the market.
Figure 1: Evolution of the Value Proposition of GICs to Parent Organizations
With technology underpinning a lot of product sophistication and service customization, this innovation works at the cross roads of advances in computing power and end consumer preferences. The reliance on knowing more and more about the end consumer raises security and privacy risks. This fear of dark forces, a need to retain core technology capabilities within, and the enduring appeal of vast talent pools and labor arbitrage savings will have an impact on the sourcing strategies of organizations, of which GICs will be a direct beneficiary.
Organizations will want to retain in-house systems that will help them edge past the competition. For example, a retailer would retain in-house systems that leverage end consumer data to make predictions on evolving consumption patterns. Consequently, the retailer can accrue additional revenue, should this system correlate local consumption patterns and weather forecast to predict on a certain Wednesday or Thursday the high demand for a certain consumable (like beer) over the weekend as it is likely to be unusually warm and sunny during that time of the year. Likewise, a retailer is expected to prefer a GIC to deliver insights to optimize its forecast and replenishment process for high margin or perishable SKUs in its stores. Organizations will prefer service providers as partners of choice for support functions that enable the organization’s core business.
Gartner’s Pace Layers
Systems of Innovation
Rapidly evolving and subject to Rapid changes
Onshore In-house / GICs
Systems of Differentiation
Enable key Business Processes unique to the organization’s industry
GICs / Service Providers
Systems of Records
Established and standardized Back End Systems
Table 1: Sourcing Strategies in line with Gartner’s Pace Layering Approach
The scaling up of GICs in lieu of service providers will have other consequences. Parent organizations will pass on vendor management and selection responsibilities to the GICs, and they will have a greater say and even a formal role in service provider selection and contract negotiation.
From a service delivery standpoint, you will see both: a high level of GIC oversight, and a closer integration of operations with GICs.
After a lull in the interest in GICs after the 2008 financial crisis, the ensuing digital revolution has put the focus firmly on the GICs. Service providers will need to calibrate their sales strategy to this new reality. As service providers race for a slice of the high margin tech services pie, they will need to deftly manage a larger group of stakeholders, including representatives of the GICs. The time to invest in dedicated BRMs for GICs is around the corner!